MercoPress. South Atlantic News Agency

Latam nationalisation threatens oil supplies

Recent moves by Latin American countries to increase state control of oil resources may cause production to fall as governments siphon off cash needed to keep fields pumping, analysts said.

High energy prices have emboldened oil and natural gas producers to change deals with foreign companies in order to fill state coffers, with Ecuador on Monday announcing it was taking over oil fields operated by U.S. Occidental Petroleum

Bolivia sent troops to take control of its natural gas fields earlier this month to nationalise the energy sector. Venezuela took over two fields from European oil firms ENI and Total.

But experts said states that take over their oil industries often cut back on exploration and production efforts to feed government programs, leaving output levels to stall or drop off as petrodollars roll in.

"Oil companies tend to be conflicted in their agendas and priorities and have limited independence from the state. This can adversely affect the investment in the upstream," said Antoine Halff, analyst for Fimat.

Crude prices have hit records in recent months on supply concerns, and any drop in output from Latin America would hike energy costs in the United States, the top importer of the region's oil exports.

In addition to investment concerns, state firms such as Ecuador's Petroecuador also may lack the technical expertise needed to operate more complex fields when they take over operations, experts said.

"It is unclear if Petroecuador has the capacity to operate Occidental's oil fields and installations in a manner that maintains current output levels," Credit Suisse said in a research note.

The South American nation is one of the top 10 exporters of crude to the United States, supplying about 370,000 bpd to the U.S. market in January.

In Venezuela, lack of investment has begun to erode production as President Hugo Chavez diverts oil revenues into social programs aimed at battling widespread poverty, analysts said.

The government on Tuesday cut its oil export target for 2006 by 100,000 bpd, the latest sign of ongoing production problems in the OPEC nation.

Chavez, who has championed the latest wave of Latin American resource nationalism, also has ordered contracts with foreign oil companies to be changed to give state oil firm PDVSA a majority stake.

The shift means Venezuela will have to spend more to keep up output capacity stable, even as new government programs eat up more oil profits, and experts warn short-term thinking may leave the country open to big problems further out.

"If prices fall or if they can't keep production up, the golden goose lays fewer eggs," said Sarah Emerson of Energy Security Analysis Inc. "My guess is that there isn't a whole lot of calculations being done saying oil prices will fall in five years, so maybe we shouldn't do this."